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Asbury (ABG) should Soar on Earnings tonight : Here is the major reason why GM & Chrysler

Auto Dealer Cull May Push Survivors' Second-Quarter Sales to Two-Year High
By Theo Keith - Jul 21, 2010

Link to Auto Dealership sector performance today:

U.S. auto retailers may post the highest sales in almost two years after General Motors Co. and Chrysler Group LLC closed thousands of smaller dealerships.

AutoNation Inc., the largest dealer group, may post $3.06 billion in second-quarter sales when it reports earnings tomorrow, the average estimate of seven analysts surveyed by Bloomberg. That would be the highest revenue since the third quarter of 2008. Penske Automotive Group Inc. and Sonic Automotive Inc., the second- and third-largest retailers, may post the highest sales in two years July 29, analysts estimate.

Chrysler and GM had said they would shut about 2,800 dealerships as they headed toward bankruptcy last year so the surviving stores could sell more vehicles at higher prices and Ford Motor Co. closed some locations in urban areas. While a government watchdog this week criticized some closings as adding to unemployment, dealer groups say they cut ailing stores.

“We’re seeing the remaining stores do significantly better,” Greg Young, Sonic’s vice president of finance, said in a telephone interview. “In markets where other Cadillac or Chevy dealers closed, our Cadillac or Chevy stores are doing much better.”

Sonic may have $1.75 billion in second-quarter sales, the average estimate of five analysts.

Penske Automotive Group Inc. may post $2.61 billion in second-quarter sales, the average of six analysts’ estimates. That would be the highest quarterly revenue in almost two years. Profit is estimated to be 29 cents a share when the Bloomfield Hills, Michigan-based company reports results.

Penske Brands

Penske, led by Chief Executive Officer Roger Penske, focuses on imports and luxury brands, with only 5 percent of its new-car sales coming from traditional U.S. brands. The retailer plans to keep that mix constant because there still is an excess of dealers selling U.S. autos, said Tony Pordon, a spokesman. The company also gets more than a third of its revenue outside of the U.S.

“We still believe there are too many domestic brand dealerships across the United States right now,” Pordon said in an e-mail. “There needs to be a further culling.”

AutoNation, based in Ft. Lauderdale, Florida, gets about one-third of its revenue from U.S. brands. The dealer has trimmed domestic brand outlets for five years and now has about 200 U.S. locations, said Marc Cannon, a spokesman. The company, led by Chief Executive Officer Mike Jackson, lost a total of eight GM and Chrysler stores in the restructurings.

AutoNation is expected to report profit of 36 cents a share tomorrow, the average estimate of 10 analysts surveyed by Bloomberg.

Pre-Crisis Sales

The retailer’s sales still would trail levels from before the financial crisis in 2008 as the 9.5 percent unemployment rate and weakening consumer confidence restrain spending. AutoNation’s sales in the second quarter of 2007 were $4.56 billion, 49 percent higher than the estimate for the same period this year.

Demand from customers remains near a historic low. The percentage of Americans who said they planned to buy a new car tumbled to 3.7 percent in June, the lowest since records began in 1967, according to the Conference Board’s June confidence index.

U.S. auto sales slowed to an 11.1 million annualized rate in June from 11.6 million in May. Last year, consumers purchased 10.4 million cars and light trucks, the fewest in 27 years. In 2006, about 16.5 million vehicles were sold.

Sonic, based in Charlotte, North Carolina, is focusing on repair and maintenance services and used-car sales to drive profit as new-vehicle sales weaken, Young said. Used-car volume has jumped 20 to 30 percent, he said.

Sonic Estimates

The company, led by Chief Executive Officer Bruton Smith, lost six GM stores and one Chrysler location. Second-quarter profit is expected to be 27 cents a share, the average estimate of five analysts.

GM had 5,100 dealers and Chrysler had 2,315 on June 30. Ford had 3,553 at the start of the year, the latest figure the automaker provided. Toyota Motor Corp., the world’s largest carmaker, has about 1,500 U.S. stores for its namesake brand and Lexus luxury vehicles.

Toyota had the highest average sales per store in the first half of 2010, with 564, according to data compiled by Bloomberg. GM stores averaged 212 sales, Chrysler had 228 and Ford had 277.

The number of new car and truck dealers in the U.S. fell to 18,200 as of July 1, a 12 percent decline from two years ago, according to the National Auto Dealers Association.

Arbitration Cases

GM may have trimmed as many as 1,400 locations by the end of the year after the company said it would reinstate 600 of the 2,000 stores it planned to cut. About 500 of the franchises GM still plans to close have gone to arbitration to be reinstated. Those cases have now been completed, said Ryndee Carney, a GM spokeswoman, without saying how many dealers won.

Chrysler planned to shut down 789 dealers, and 30 have won arbitration cases. A number of other, mostly rural franchises accepted a company offer to become retailers for the post- bankruptcy Chrysler, said Mike Palese, a spokesman for the Auburn Hills, Michigan-based automaker. He declined to give a specific number of how many accepted the offer.

U.S. President Barack Obama’s administration pushed to speed up the GM and Chrysler dealership closings, which may have added tens of thousands of workers into unemployment, Neil Barofsky, special inspector general for the Troubled Asset Relief Program, said in a July 19 report.

“Such dramatic and accelerated dealership closings may not have been necessary and underscores the need for Treasury to tread very carefully when considering such decisions in the future,” Barofsky said.

To contact the reporter on this story: Theo Keith in Southfield, Michigan at